The FIAT money is prone to “Hyper Inflation”
Kyun Paisa Paisa Krti Hai Kyun Paise Pe Tu Marti Hai…
…This famous and cheeky lyric of Bollywood which when translated into English means why you are always behind money and dying for the money. We all know that films are the mirror of the society and including money into songs emphasise- how important is money in our life.
Let’s have a slight shift towards the technology and later we will see how money and technology will be interrelated. We all are aware that discovery brings changes in our lives but there are certain inventions which change the entire fabric of the society- one such invention is Bitcoin.
We have decided to partition the whole thing into 2 parts to better understand the nuances of digital currency. In this part, we will see the whole concept; the entire journey of money, how differently it has been used, the problems of modern day currency and why a global currency is much needed.
So the first point which we are going to understand is- why we need money?
Well, in most simple words, it is used for solving the problem of the barter system (exchanging goods & commodities). From that point of view, money is nothing but a technical solution for solving the day-to-day problems of the society.
The next thing which we have to ponder upon is what thing we do uses the money, really why?
So around 11 thousands year back in 9 thousand BC, people started using money in the form of day-to-day utilities like cattle, grains, milk which were a bit rare in nature, unlike sand and rocks.
But the problems with that kind of currency was of durability; grain could get spoilt, cattle could die and portability; you’ve to drag your cow or sacks of grain as the money, and divisibility; imagine you’ve to exchange an animal that big for a small transaction.
Then after 5 thousand years back i.e. near around in 4 thousand BC, precious metals immersed where people from different tribes started accepting it as money for transacting as it was solving their problems of rarity, durability, portability, and divisibility.
Just 1000 years back, paper money was born where people started submitting their gold to goldsmiths mainly to prevent them from theft; gold smiths become the banker and started issuing paper receipt against the deposits.
Later after a period of time, people started using paper receipts as money instead of taking gold from gold smiths and paying to another party. And that’s how- paper currency note comes into existence.
Fast forward to less than 100 years back “FIAT” money appeared whose literal meaning is money having no intrinsic value but backed by a central authority i.e. modern currency. Now, we have to look at some nuances of modern transactions:
#1. Transactions are no more done in physical form:
Yes, from last few decades, we are heavily using modern online payment technologies like online gatekeepers, digital banking, or credit card Company as the network for transferring or transacting our money- making them extremely powerful.
They have become so powerful that they can even disallow any transaction to happen on their network which was never in the case of physical money.
Imagine, you’ve to take permissions from these networks to transfer your own money with all the details of your transactions which can be and in fact has been misused by these 3rd parties. Some eco-experts have named these intermediaries as- Financial terrorists.
#2. We Are Increasing As a Global Citizen
With the advent of Internet and powerful networks we can easily communicate with the other parts of the world but when it comes to exchanging money we are still far behind in the play.
Even if somebody is that lucky to have an International credit card, it still requires him to take permission from money exchanger and have to pay taxes or a kind of fee (which can vary anywhere from half a percent to 15) to make that transaction happen- never ever happened before in the history of mankind.
If we look it into a relatable scenario; a common worker working in Dubai has to give a part of his hard earned money to these intermediaries for sending his own money to his peers- back at home. (Isn’t it a kind of digital loot?)
Not only this…
….Considering the number of daily current exchange volume which is 6 trillion US dollars and increasing by 20%; the scope and need of global currency with no intermediary is- highly required.
#3. The FIAT money is prone to “Hyper Inflation”
We all know that the current money (FIAT) which we are using is basically unlimited in supply and free to create, unlike currency that was backed by gold standards. The only way to make it rare is artificially by the central bank or government of the nation or some monetary policy.
So what is the problem with that?
It can be generated by the government for bad reasons may be to fund a war, proxy elections, kick out economy from depression. Now, when it happens, our money for no reason loses its value and is called- Inflation.
And when it happens, in a dramatic way, in a very short period of time then it is called as- Hyperinflation. You will be surprised to know that FIAT money which is only 100 years old; there have been 55 cases of hyperinflation- between 1967-2011.
Some of the famous among them were Zimbabwe dollar losing half its value every hour up to the extent that 100 billion dollars could only buy 3 eggs. In recent times 2014, Russian ruble has lost its value up to 40% in just 24 hours- that’s hyperinflation.
Now it’s your turn:
You have just seen how money has come into being and the problem with current currency…
In the next blog, we will see the future of money-Bitcoin and how it will eliminate the problems of global finance.
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